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International Monetary Fund

The External Evaluation Group faced a very difficult task and has produced a document which raises all the relevant issues which should help the Board shape the future work of the IEO. While I agree with much of the Report, there are areas where I do not agree with the Group’s assessment and my reactions on these points are outlined below (page references indicated).

International Monetary Fund

On April 26, 2006, the Executive Board of the International Monetary Fund (IMF) discussed an External Evaluation of the Independent Evaluation Office (IEO).

Montiel Peter J. and Ostry Jonathan D.

Real exchange rate rules have recently been adopted by a number of developing countries as a means of maintaining international competitiveness in the face of high domestic rates of inflation. The conventional wisdom holds that such rules will quickly lead to hyperinflation, an outcome that is not consistent with the experience of at least some of the countries that have adopted them. This paper shows how real exchange rate rules can easily have destabilizing effects on the inflation rate without leading to hyperinflation, and shows that such effects are difficult to overcome even when supplemented by an appropriate money-supply rule.

Enoch Charle and Gulde Anne-Marie

The past years have witnessed a revival of interest in the adoption of currency board arrangements (CBAs).This paper argues that the successful establishment of a CBA requires that, in addition to adopting appropriate macroeconomic policies, the authorities make careful preparations on the technical aspects of the transition. The range of necessary preparations will vary from country to country, but will generally involve changing the central bank law, reorganizing the central bank, devising appropriate guidelines for reserve management, and adapting the government’s cash and debt management activities. Additional measures are required for countries that recently experienced banking sector problems.

International Monetary Fund

The Independent Evaluation Office (IEO) has served the IMF well, but the panel has identified certain weaknesses and sees trends that are cause for concern about its future. The biggest challenge facing the IEO is to avert the tendencies, pressures and practices that may push it in the direction of becoming bureaucratized, routinized and marginalized.

International Monetary Fund

1. Some five years after the Independent Evaluation Office (IEO) was established, it is appropriate, as was envisaged then, to consider how the IEO is functioning, what it has achieved, and how it can be improved. The perspective of a disinterested, external panel can be valuable in this regard, and the present report will surely contribute to a lively Board discussion of this important topic. Staff appreciate the Panel’s attention to maintaining a high quality IEO staff and improving the quality and effectiveness of IEO reports.

International Monetary Fund

1. The IEO welcomes the report and its recommendations. It particularly welcomes the confirmation that the IEO is a necessary aspect of the good governance of the IMF, retaining strong support in many quarters; and the conclusion that the office has met most of the expectations raised at the time of its creation. One aim in setting up the office was to ensure as much independence as possible matched by full transparency, both inside and outside the IMF; it is therefore important that the report concludes that the office has established itself as an independent body.

International Monetary Fund

1. As I have emphasized in my report on Implementing the Fund’s Medium-Term Strategy, we are committed to improving and strengthening the Fund. The IEO has a valuable role to play in this regard, together with all the Fund’s other checks and balances, including by strengthening the learning culture and improving the governance of the Fund. The external evaluators report contains a number of useful suggestions on improving the IEO’s contributions. However, I would like to respond to a few issues regarding coordination of work programs, evaluation of individual countries, follow-up on the IEO’s recommendations, and the IEO’s Terms of Reference.

International Monetary Fund

1. The management and staff responses to the Report of the External Evaluation of the Independent Evaluation Office make a number of suggestions for the modalities of operation of IEO that have potentially important implications for the independence of the office. These, in IEO’s view, would warrant careful consideration. This supplement is being circulated to provide IEO’s views on the particular issue of publication policy.